The Federal Reserve may adopt an aggressive policy and increase interest rates at a faster-than-expected pace considering the rising inflation rate in the United States, according to an analysis by Goldman Sachs, a multinational investment bank and financial services company.

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Even the market is expecting four quarter-percentage-point hikes this year and the rise in Omicron cases could make the Fed increase the cost of borrowing at every Federal Open Market Committee (FOMC) meeting until the inflation picture changes, said David Merile, an economist at Goldman Sachs. He added, “Our baseline forecast calls for four hikes in March, June, September and December”.

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According to the report ahead of the FOMC’s proposed two-day meeting on Tuesday, market observers don’t expect the FOMC to raise interest rates in this two-day meeting. The official could reach a consensus on effecting a hike in March, which would be the first increase in the Fed’s benchmark rate since December 2018.

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The chances of the FOMC increasing the interest rate five times this year have moved to nearly 60%, according to the CME’s FedWatch tool. If implemented, it would be the most aggressive Fed policy since the dot-com bubble in the late 1990s.

Some market observers also predict that the FOMC would shut down its monthly bond-buying programme at next week’s meeting but Goldman Sachs doesn’t expect it to happen at the two-day meeting.

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Currently, the inflation rate in the United States is at its highest 12-month pace in nearly 40 years. The yearly inflation rate is projected at 7% for the 12 months ending December 2021 – the highest since June 1982.

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The FOMC meeting will start on Tuesday, January 25, 2021. The FOMC meets eight times a year to discuss monetary policy changes, review economic and financial conditions and assess price stability and employment. The meeting is held every six weeks. The committee consists of twelve members, including the seven members of the Board of Governors of the Federal Reserve System, the president of the Federal Reserve Bank of New York, and four of the remaining eleven Reserve Bank presidents, who serve one-year terms on a rotating basis.